Risk Assessment and Cost-Benefit Act

In 1995 the Republicans passed the Job Creation and Wage Enhancement Act, its title reflecting Republican assertions that environmental and other regulations inhibit investment and entrepreneurial activity. It stalled in the Senate.

Part of the Job Creation and Wage Enhancement Act was the Risk Assessment and Cost-Benefit Act of 1995 which required that government agencies undertake a full risk assessment and cost benefit analysis before any major rule could be introduced. This legislation was aimed at stalling and discouraging environmental regulations.

The Act required that for the introduction of major rules likely to result in an annual cost of $25 million or more a risk assessment should be carried out that discusses all the relevant scientific literature, discusses and explains the differences between them, the methodology used and assumptions made and why they were decided upon, and characterises the risk. The risk characterisation should include estimates of risk with upper and lower bounds, exposure scenarios and comparisons with other risks that people are familiar with. All this even before the cost-benefit analysis is to be done. In some cases, a full peer review would also have to be done.

The Act was labelled by Carol Browner, head of the US Environmental Protection Agency (EPA), as a “full frontal assault on protecting public health and the environment.” Browner estimated that the EPA, one of several agencies affected by the legislation, would need 980 new employees and more than $220 million just to comply with the risk assessment requirements of the Act. The EPA took almost four years and $4 million to produce a risk assessment on dioxin.

Peter Montague, from the US Environmental Research Foundation, argued that the Act would “effectively end government regulation of health, safety and environment” because of the magnitude of the work involved. He estimated that under the Act “we can’t imagine any regulations passing in less than a decade”.

David Michaud, director of the US Office of Grassroots Action, claimed that if the Act had existed 20 years before, “the federal government could not have banned lead from gasoline, DDT from agriculture or required automobile companies to install seat belts.” Former Senator Edmund Muskie, a main author of the original Clean Air and Clean Water Acts, claimed the new Act “would halt 25 years of accomplishment and turn the clock back to the days when the special interests made the rules and people absorbed the risks.”

In a report entitled Breach of Faith: How the Contract’s Fine Print Undermines America’s Environmental Success the US National Resources Defense Council (NRDC) found that the new Act would “expressly override the health and environmental protection mandates of the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Endangered Species Act, and virtually all other environmental laws.” The NRDC and others are particularly concerned about the bureaucratic requirements of the Act and the Californian-based Global Action and Information Network has labelled it “paralysis by analysis”.

Think Tank Support for the Act

The legislation had been heavily promoted by the conservative think tanks. The Competitive Enterprise Institute (CEI), for example, have claimed that effective regulatory reform requires “an across-the-board requirement that the benefits of any rule be shown to exceed the risks” and “rules based on hypothetical threats to human health and safety be supported by a preponderance of evidence.” In order to do this, it argued, “The EPA should be required to perform a cost/benefit analysis of each and every regulation to ensure that costs of complying with clean water regulation do not outweigh their benefits.”

The CEI also argued that if the EPA set standards then it should also provide the money to pay for their implementation and “refrain from imposing unfunded mandates.” Additionally risk assessment would overcome what the CEI sees as the way “regulatory policy has too often evolved in reaction to popular panic to sensational fear stories in the media, not in response to sound science. As a result billions of dollars are wasted every year in battling problems that are not considered dangerous...”

In an article supporting the legislation in the conservative magazine Insight on the News Hank Cox quoted the Heritage Foundation as estimating “the cost of federal regulations to the economy at $500 billion a year, or $5,000 per household.” He applauded the legislation as part of a “three-pronged attack from Congress” that would “curtail regulatory activities across the board” and “force staff reductions, impeding the ability of agencies to enforce existing regulations.”

To determine if the world should buy an expensive insurance policy against global warming, the probability of harm occurring must be multiplied by the likely magnitude of the harm. If the resulting expected harm is higher than the economic and social cost, then buying an insurance policy makes sense. If the expected harm is lower than the cost, it does not make sense to do so. Although it is difficult, if not impossible, precisely to quantify the expected harm from global warming, lawmakers must attempt this calculation if they are to develop sensible, cost-effective policies.